Private labels and licensed merchandise: Is there a competition?

Of late, a lot of investment has been made in private labels by big retailers. To compete with private labels some manufacturers are taking the licensing route. In the retail market both private labels and licensed merchandise are being sold side-by-side unlike before. When we come across a sight where we see both product categories sharing the same shelf-space, we wonder how licensed merchandise and private labels are competing among themselves and which one survives, ultimately! We reached out to a couple of manufacturers, who manufacture both private labels and licensed merchandise and a few retailers for the answer.

Manufacturers speak

Manufacturers have joined hands with both licensors (for licensed merchandise) and retailers to come up with the respective product categories. They comfortably look at the two arrangements to enhance their sales. So which one do they manufacture more?

Vineet Sharma, Director, Aureole Inspecs India Private Ltd. comments, “As far as numbers are concerned, they are similar for licensed products as well as for private labels. In terms of overall business, for us Licensed products business is currently higher than the private label business. Both the categories are brand driven but the larger difference is that the licensed products have larger potential because of multiple sales channel available to them whereas the private label gets restricted to the retailers presence within a said market.”

Gaurav Dublish, Director, Wildcraft India says, “We have recently partnered with MTV for producing Wildcraft-MTV Co-Branded Outdoor Gear. We do not go after the numbers. We are looking at the partnership for reasons beyond simple licensee-ship.”

Investment concerns

Manufacturing and introducing any product or service in the market requires investment, so which requires more investment, private label or licensed product? Pankaj Sikka, Manager-Licensing, Bioworld opines, “Investment towards product designing and sampling almost remains the same although it is skewed for licensed products since we have to follow guidelines and procedure laid down by the brand owners. The fee applicable towards being allowed to use a copyrighted design also leads to an increase in the initial investment.”

“The process also involves the design team to ensure that they completely understand the brand guidelines, which involves indirect cost of training imparted. This tilts the balance scale towards licensed merchandise if we weigh the initial capital,” adds Sikka.  

Retailers’ response

The pull for licensed merchandise is comparatively much more than that towards a private label from a consumer’s standpoint. The graphics of iconic characters used is always a first eye catcher for consumers, thereby, generating more footfalls and thus more communication. Sikka says, “Retailers do encourage licensed merchandise. We have always had an encouraging response.”  Dublish opines, “For retailers having a licensed product is as good as keeping any other brand, as long as expected returns are in line with the overall targets and there’s space available.”

However, Devendra Chawla, Head-private brands, Future Group comments, “We have a presence in nearly 85 merchandising categories, there are hardly two or three licensed merchandise brands. There is no major evidence on comparison or even competition of private labels directly with licensed brands. As our private brands portfolio is growing at 85 per cent plus, we don’t see any concerns on the growth aspects of private brands due to competition with licensed merchandise.”

Which is here to stay?

All things remaining same (product/price/distribution), demand is definitely going to gravitate towards the recognised brands, as long as there’s a fitment. Though the gross margin, is higher in case of licensed products but the risk involved is also higher. So if we question out of the two which one is more lucrative for the manufacturers, the answer would be very subjective. It depends on a manufacturer, what does he/she value, greater return with greater risk or small profit for no risk?

However, consumers are willing to reward those retailers, who possess the right mix of their brands and licensed products!